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Litigation Skills

What to tell your clients and when – Learn the essential litigation skill of communicating with clients

An advocate’s career is not all about communicating an argument effectively with a judge or assisting a senior colleague. Building lasting relationships with clients is almost equally important. Since legal education, unfortunately, provides very little help in navigating this part of an advocate’s professional life, we asked a few experienced advocates whether they had any advice for young advocates who are commencing their professional journey. This is what they had to say.

 

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Litigation Skills

Get better at drafting for a career in litigation

At the beginning of a career in litigation, good drafting is one of the few things that junior advocates can do to earn the respect of peers and seniors. Is there a method to drafting well? How does one get better at drafting pleadings? We put these questions to a few experienced Delhi-based lawyers. You can listen to what they had to say, in the video below.

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Litigation

Drafting need not be a chore if you reflect on what you want to tell the court

JSaiDeepak_OnTrialWith a series of posts that will appear here under the header “On Trial”, I want to give lawyers who are about to embark on their professional journey, a flavour of what I have learnt in six years as a trial and appellate litigator. I believe that although law schools equip students with some basic skills, by and large they do not prepare them for the rigours and demands of a law practice. I hope that my posts here will help them scale the learning curve faster and with fewer mistakes.

Another recent trend that I noticed was that students are keen to take “activist” positions without doing their research on the law as it exists. There is nothing wrong in taking positions or having opinions on matters of policy but lawyers need to first have clarity on what the law is before commenting on what the law ought to be. That apart, no matter how good one is at substantive law, it is important to know how to present and prove a case in a court of law. Command over procedure is equally important and procedure is best learnt through application and practice.

Introspect when you make errors

StressedLitigatorOnce you join the profession, you will realise that most experienced lawyers do not have the time to sit you down and explain how things work. You learn on the job and naturally, are bound to commit a lot of mistakes. The experience can be soul-shattering and may shake your confidence in yourself. What has helped me in these moments is the realisation that a lawyer must not only be a doer, but must also be a conscious observer of his actions. In other words, every time you goof up, your first instinct must be to look inward and be brutally honest, instead of passing the buck or making anyone else the scapegoat. This realisation led me to create my own “Mistakes Log” which has captured nearly every mistake I have committed in the last six years. I have preffered to assess the quality of my journey using the number and quality of my mistakes because success is the product of several factors, many of which are external and are beyond one’s power.

In these posts, I will draw on my experiences (both personal and vicarious) and share a few practical inputs. I will not, unless absolutely necessary, use much legalese or cite precedent because, thanks to the tools and databases available to most lawyers and even non-lawyers these days, it is not really difficult to read up on the case law on any issue, procedural or substantive. That said, it is important to bear in mind that individual journeys vary and consequently, the lessons drawn as well. Therefore, caveat lector applies to what I have to say.

I will write about aspects of both civil and criminal litigation. Under civil litigation, I will discuss pleadings, interim reliefs, discovery, the trial, oral arguments, and finally, appellate reliefs. Let us look at the general approach to drafting and pleadings first.

Orders VI to VIII of the Code of Civil Procedure, 1908 deal with pleadings. A pleading is defined in Order VI, Rule 1 to mean a plaint or a written statement. Orders VII (read with Section 26) and VIII deal with the requirements of a plaint and written statement respectively and the rules that govern pleadings generally are laid down in Order VI. Adherence to these rules, it is important to understand, is mandated only to the extent that the ends of justice are advanced. Departures from them are not uncommon in practice, nor are they frowned upon by courts unless they are egregious or fatal. This is not to trivialise or discourage adherence to these rules, it is merely an observation about the state of affairs.

In practice, when it comes to pleadings, the tendency is to play safe. This manifests in several ways – right from faithfully adopting boilerplates to making repetitive submissions for the fear of being accused of not denying an allegation or a claim or an assertion by the other side, so much so that even evidence affidavits turn out to be slavish reproductions of pleadings.

Drafting need not be a chore

Although there is a sense of safety in treading the conventional path and in reiterating, errors tend to creep in when templates are adopted without discrimination and that could cause embarrassment when they are scrutinised by the opposing side during trial. Also, from the litigator’s point of view, drafting becomes a chore as opposed to the active learning and simulation exercise it is supposed to be, which certainly does not bode well for the quality of the final product. So how does one go about drafting pleadings?

For starters, it would help to bear in mind that drafting is different from writing. Although good writing skills contribute to good drafting, being adept at English or at writing do not necessarily translate to good drafting. In fact, sometimes there is even a mismatch between the flair that people exude for spoken English and the quality of their writing, and even the converse holds good. Therefore, although a fair command over language and lucidity in writing are essential, what separates writing from drafting, is the realisation that:

(a) it has a real and serious bearing on the fortunes of a litigant.

(b) it caters to an audience that is trained in the law,

(c) it has to present the litigant’s case in the best possible manner while conforming to the requirements of the law, and finally

(d)it will be subjected to withering adversarial dissection by the opposing party (a draft looks great only until the opposing party steps into the picture).

Bearing all of this in mind helps lend sharpness to a draft. That said, given the critical role of pleadings, it is natural to be bogged down by the tedium and gravity of the process. So, given that in the initial years of practice, a litigator is primarily expected to be a researcher and a drafter, how does one quickly churn out sharp drafts and yet make it an engaging exercise?

Although it may not always be desirable or possible, crisp and concise pleadings make life easier for the litigator and the court, more so for the latter since it does not have the time or patience for rambling pleadings. In fact, the volume of pleadings invariably weans a court away from hearing a matter even if the dispute is otherwise fairly straightforward. That said, a litigator’s primary challenge in keeping pleadings to the point is to convince the client that volume of pleadings is not directly proportional to the strength of the case and certainly does not guarantee a successful outcome. This is where the litigator has to fall back on her or his client counselling skills to set reasonable expectations to the client. While it is true that not every client may be convinced, the effort is worth it.

Reflect on what you want to present to the court

The key to clear-cut pleadings is to spend time thinking about what one wishes to present to the court before starting to draft. This means that the broader and the narrower points must be broadly identified and supported with factual and legal research. Subsequently, the litigator must decide the sequence in which the points must be captured so that the court can quickly grasp the nub of the matter without having to wade through several pages. This sequence must not be treated as final because during the course of drafting, an alternate sequence of arguments may seem more logical, or appeal from a strategic perspective. Although this approach may seem time-consuming at first, the advantages of spending time on the matter before drafting will become apparent with time as one becomes more adept at identifying issues and developing a feel for the forum. After all, in our profession, hard work is not measured by the number of hours spent in thoughtless labour or the number of pages drafted. The effort lies in rumination.

J.Sai Deepak, an engineer-turned-litigator, is an Associate Partner in the Litigation Team of NCR-based Saikrishna & Associates. Sai is @jsaideepak on Twitter and is the founder of the blawg “The Demanding Mistress” where he writes on economic laws, litigation and policy. All opinions expressed here are academic and personal.

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Corporate

Learning to draft a termination clause? Start with the events of termination.

Drafting_for_Business_Deepa_Mookerjee.jpgAfter our discussions on condition precedent clauses, restrictions placed on transfer of shares, and the meaning of ‘call’ and ‘put’ options, let us now turn our attention to the termination clause, one of the last clauses we usually see in a shareholders agreement but no less significant. It is in fact a vital clause that contains the mechanism by which an agreement can be terminated and the shareholders can exit the company.

A termination clause typically contains two main elements: (1) the events of termination; and (2) the consequences of such an event occurring. In this post, let us look closely at some common events of termination:

– Material default by one party: Take the case of A Limited and K Limited, two parties to a shareholder agreement. K Limited commits a material default and is unable to cure that default within a specified period of time. A Limited should then have the right to terminate the agreement.

While drafting this clause, clearly define the term ‘material default’. This ensures that the agreement cannot be terminated for minor ingressions and that only serious defaults will trigger the clause. Also, it reduces the scope for parties to dispute whether a ‘material default’ has in fact occurred.

Next, the defaulting party should always be provided a specified time period (known as the ‘cure period’) to rectify the situation, and only the non-defaulting party should be given the right to terminate the agreement. Specify that to invoke this clause, the non-defaulting party must always send a written notice to the defaulting party.

– Deadlock: A deadlock typically occurs when parties are unable to agree on a vital issue necessary for running the business of the company. While drafting, always define a ‘deadlock situation’. An example could be a company’s inability to hold a board meeting on three consecutive times for want of quorum.

For example, if K Limited would like the company to take a loan and A Limited disagrees and whenever K Limited tries to organise a board meeting to discuss this issue, the directors representing A Limited do not show up and so since no proper quorum is constituted for a board meeting, it can be considered a ‘deadlock situation’.

Often, the occurrence of a deadlock situation can act as a termination event. Parties may feel that it is impossible to run the business in such a situation and they would rather terminate the agreement. Discuss with your clients whether they would like a deadlock to be a termination event or whether they would prefer to resolve the situation through other means (such as arbitration).

Further, if a deadlock situation is considered an event of termination, always specify a mechanism by which one party can send a written notice to the other party specifying that this is a deadlock and it would like to terminate the agreement.

– Insolvency of the company – A Limited and K Limited are shareholders in One Limited, a corporation that is bankrupt and going through insolvency proceedings. Obviously the shareholders will then wish to terminate the agreement since it is not possible to continue running the business. While drafting this clause, it is best to specify that the agreement will terminate automatically on the occurrence of this event. This will eliminate procedural steps such as a notice being sent by one party to another.

– Cancellation of the license required to carry on business: The shareholders agreement concerns a banking company. A bank requires a license from the Reserve Bank of India to carry on business. If this license is cancelled, the bank ceases to function. Therefore, cancellation of the license (in a regulated entity) should be drafted as an automatic termination event.

– Change in law (resulting in the business of the company becoming illegal): Currently, the law permits private entities to operate airlines (subject to the necessary approvals). Assume that over a period of time, the government changes the law and nationalises all airlines. This means that private entities can no longer operate airlines. Consequently, any shareholders agreement to operate a particular airline must automatically terminate.

There is one important distinction among termination events that comes to mind when we study these clauses – some do not result in automatic termination and require parties to send written notices to each other (for instance, in case of material default or deadlock situations) and in other cases, there is an automatic termination (in case of a change in law, insolvency, or cancellation of a license). Always keep this distinction in mind while drafting. Ask your clients whether they are comfortable with certain events leading to automatic termination. After all, the thumb rule while drafting is always to reflect the interests of your client.

Finally, remember that a termination clause usually comes into play when the parties are disputing or have an issue they cannot resolve. In such a scenario, it is necessary that the termination clause is clearly drafted and sets out in a very precise manner, the events of termination and their consequences. If the clause is open-ended or vague, it is unlikely the parties will be able to follow the clause since they will end up arguing over the very intent of the clause itself. As a lawyer, your role is to try to amicably resolve the dispute or at the very least provide the most efficient way to exit from a situation that cannot be resolved!

With this, we come to the end of this post. In my next post I will write about the consequences of termination.

Deepa Mookerjee is part of the faculty on myLaw.net.

Categories
Corporate

All you need to know about drafting put and call option clauses

Drafting_for_Business_Deepa_Mookerjee.jpg“Call options” and “put options” are used frequently in shareholders agreements. As you know very well by now, a shareholders agreement specifies the rights and obligations of shareholders and sets out the manner in which the company will be governed. We have already seen some vital clauses used in these agreements such as condition precedent clauses and restrictions placed on the transfer of shares. Let us now look at “call” and “put” options.

Simply, a call option is a right but not an obligation to purchase shares at a specified price, on the happening of a specified event. If A and B are two investors in a joint venture company, A may have a call option over twenty-six per cent of the shares held by B, which he can exercise once the limit on foreign direct investment (“FDI”) is raised. This means that once the FDI cap is raised, A has a right to purchase twenty-six per cent of the shares held by B. If A exercises this right, B cannot decline to sell the shares to A.

A put option on the other hand, is a right but not an obligation to sell shares upon the occurrence of a specified event at a specified price. If A has a put option over twenty-six per cent of his own shares in the company that he can exercise once the company is insolvent, it means that if the company declares insolvency, A can sell his shares to B. Once A exercises his put option, B cannot decline to purchase A’s shares.

Junior lawyers should understand these mechanisms well because they can be used in a shareholders agreement in various scenarios. To think that call and put options are only useful in an FDI limit scenario or an insolvency situation (as discussed above), would be incorrect. Let us first go through some scenarios to understand how they may be useful.

Versatile options

Assume that there are two shareholders in a joint venture company – A and B. You are representing ‘A’. A comes to you with a simple question – what if B commits a material default of the provisions of the shareholders agreement and is unable to cure the defect or default? What are the options available to A?

PutAndCallOptions_ShareholderAgreementsYou can tell A that he can either ask for a mechanism by which he can sell his shares and exit the company (a put option) or a mechanism by which he can insist that B exits (a call option), when the material default occurs. The latter mechanism means he can continue in the company and ask B to exit. If you know these mechanisms well, you can give your client two options – either continue in the company and buy the other party’s shares (by exercising the call option) or sell his shares and exit the company (by exercising the put option).

Take another scenario. Suppose your client would like to continue as a shareholder in the company only if the company generates a certain amount of revenue after a specified period (say five years). If not, your client would like to exit. If you know what a put option is, you can simply suggest that your client include a put option over his own shares.

These two mechanisms can therefore be used throughout shareholders agreements to address different scenarios and the various needs of your client. There are some points that you should keep in mind while drafting them.

1. Be precise about whether your client has a right to sell shares or is under an obligation to purchase shares. Use words such as ‘right’ and ‘obligation’ wisely to ensure that the burden is being placed on the correct party.

2. Specify the amount or percentage of shares that are subject to the call or put option. At the time of enforcement, there should be no confusion on the amount of shares that can be sold or bought.

3. Remember, contractual arrangements can work in many permutations and combinations. For instance, if you are drafting a put option clause, it is not necessary that the shares always need to be sold to the other parties in the shareholder agreement. You can also have a right to sell your shares to a third party of your choice. Similarly, it is up to the parties to decide whether the option should apply to a part of the shares or all the shares that a party holds. As a lawyer, you should advise your client about the most appropriate form of the clause depending upon his or her intentions.

4. As always, the letter of the law plays an important role. For instance, the Reserve Bank of India has made it clear that a non-resident investor should not be guaranteed any assured exit price at the time of making an investment. The exit price must be a fair price calculated according to the prescribed guidelines and at the time of exit. Keep this in mind when you draft a put option for a foreign investor and always know the correct legal position before drafting.

5. Always flesh out the manner in which the clause will work. For instance, if your client has a call option on the shares held by the other party, you should specify the manner in which your client should send a notice to the other party indicating his or her intention to exercise the call option (known as a call option notice), the time period within which the other side must respond (the call option period), the price at which shares will be sold (the call option price), and the maximum time period within which the sale must take place. Specifying these details makes it simpler to execute the sale and implement the clause effectively.

Remember these basic points while drafting. Make sure that you are always clear about what a clause is intended to achieve. Take the time to understand the needs of your client and draft accordingly.

(Deepa Mookerjee is part of the faculty on myLaw.net)